Breadcrumbs

Love gifts are income

“We take a weekly love offering for the pastor because our church can’t afford to pay him a salary.”

Really? If you can take the time to collect a special offering for the pastor, your members have the ability to fund his income legitimately. But that’s not this month’s message ...

Churches have claimed that they simply gave the money to the pastor without counting it, making it a nontaxable gift.

The United States Tax Court had a different opinion last year, holding that the pastor’s “gifts” — which amounted to hundreds of thousands of dollars — were income and fully taxable because the church “actively facilitated” the transfer from church-goers to the pastor.

Honoraria ... love gifts ... money trees ... appreciation offerings ... no matter what you call them, they’re probably taxable income reportable by the church to the IRS. That’s especially true if the recipient is a paid employee of the church, such as the pastor. It’s time to stop the practice, or learn to do it right. Stopping is better.

Our churches must face up to the reality of the Internal Revenue Code, because many have been in violation for years. The only thing in a church’s favor is that the IRS tends to operate reactively instead of proactively. Unless someone’s tax return raises “red flags” or the agency receives a complaint, it might never suspect a church is cheating the government.

Which is not a license to cheat!

A gift is anything of value you transfer to someone without expecting to receive something of at least equal value in return. Certain gifts are not tax deductible. What churches may never do is collect funds earmarked for an individual and pass them to the individual without reporting it as income to that person. Failure to report results in the church providing a prohibited private benefit (an “inurement”) and jeopardizes the church tax-exempt status.

One result is that church officers and directors are exposed to personal liability, which can mean criminal and/or civil penalties for permitting the church to operate unlawfully. Those penalties are called “intermediate sanctions” — an IRS effort to permit a church to remain tax exempt rather than putting it out of business.

If your church has been supporting its pastor, musicians, youth minister or other staff by collecting or giving “love gifts,”

Stop! Now! Please! It’s wrong.

Those payments belong in the church’s budget, are reportable as W-2 income, and reinforce the biblical message of stewardship to church members.

As I’ve previously written, worship musicians are not “independent contractors” and what you pay them must equal or exceed minimum wage.

Churches operate in a dual capacity — they provide spiritual nourishment, and they are businesses. They receive special “breaks” thanks to the Constitutional “separation of church and state,” but they are not exempt from all civil responsibility. And that’s what I’ve been working to help our churches understand these last three-and-a-half years.